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Environmental Forces Faced by an Entrepreneur

Environmental Forces Affecting Entrepreneurship

Our society is a pluralistic society. It is composed of many groups and forces. These groups and forces exert pressure on entrepreneurial decisions and actions.

Basically, the environment which the entrepreneur faces can be divided into two categories, such as: Internal Environment, and External Environmental factors.

Environmental Forces Faced by An Entrepreneur

I. Internal Environment

The internal environment is controllable by entrepreneur up to certain extent although it creates complexities and hurdles. It is of prime importance to identity the weaknesses and strengths of firm.

The following components of internal environment must considered by an entrepreneur :

  1. Goals and objects of business
  2. Business and managerial policies
  3. Business ethics and moral standards
  4. Availability of resources
  5. Capabilities of business and prospects for development
  6. Production methods plants and machinery
  7. Work environment and culture
  8. Structure of organization
  9. Business policies and strategies
  10. Labour-management relations
  11. Entrepreneurial development plans
  12. Acts and policies towards social responsibility
  13. Achievement motivations.

II. External Environmental Factors

External environmental forces largely affect the entrepreneurial activities. External factors are not controllable by entrepreneur. Hence, he should take decisions after considering the effects and pressures of external environment. An entrepreneur faces the following types of external environment:

Physical Environment

The physical environment deeply influences the production, nature of demand, uses of materials, cost structure, price, distribution and publicity and consumer behaviour etc. Physical environment includes the following:

  • Natural resources,
  • Climate and temperature,
  • Landscape,
  • Electricity and power,
  • Roads, airways, seaports,
  • Communication network,
  • Ecological conditions.

In recent years, the natural and ecological environments have become of ever increasing importance to entrepreneurs. They face a broad range of ecological issues. Among them are air and water pollution, hazardous waste disposal unsafe pesticides, automobile emissions, ozone depletion, and global warming. Entrepreneurs have to balance their decisions about producing things people want against ecological limitation and pressures.

Economic Environment

The economic environment covers a vast territory. It is of primary significance to entrepreneurs. It exercises the most direct and immediate influence on entrepreneurship. Some important factors that put direct influence on entrepreneurship are as follows:

  1. Economic System:

    It may be capitalist, socialist, democratic or mixed. The economic system determines the nature and scope of entrepreneurship. It also affects mobilization of resources.

  2. Economic Policy:

    Economic policy of a country such as industrial policy, taxation policy, monetary and fiscal policy, import-export policy etc. have direct impact on entrepreneurial active ities in the country.

  3. Nature of Economy:

    The nature of entrepreneurship is determined by the level of development of economy. In a developed economy entrepreneurs have to undertake innovative activities for survival and growth.

  4. Trade Cycles:

    The fluctuations in the economic and trade cycles create many challenges and problems in the development and expansion of entrepreneurship.

  5. Structure of Economy:

    The factors like national income, rate of capital formation, development of capital market, rate of investment and savings etc., are the structure of the economy. The favourable growth of these factors may promote entrepreneurship.

  6. Statutory Laws:

    The government enacts various laws to regulate business Favourable economic laws may promote the development of entrepreneurship

  7. Consumer Factor:

    Consumer tastes needs preferences age, sex, income, living standard etc are some of the important factors that may directly influence the business of an entrepreneur.

  8. Financial Resources:

    Availability of capital facilitates the running of business. It also encourages innovations and introduction of new things. Lack of required capital for industrial activities may impede and discourage entrepreneurs.

Technological Environment

Technology is the application of scientific knowledge to practical problems. New technology can and often does change the entire way of life, thinking, values, habits and even the political processes of a nation.

Technology has influence on entrepreneurship in two major ways:

  1. Through its impact on society in general.
  2. Through its direct influence on entrepreneurial activities.

The technological environment brings changes in the form and operation of industrial and productional activities in the following ways:

  • Changes in the production methods.
  • Development of new machinery, tools and equipment designs.
  • Development of new raw materials.
  • New inventions to modernize plant workshops and technical processes.
  • Exchange of technology between entrepreneurs and enterprising nations.
  • Effects on purchasing, publicity media and means of transportation.

Social Environment

Social environment exercises a significant influence on the development of entrepreneurship. It included such diverse forces as changing values, education, religion, customs and habits of people, social behaviour, social interests, expectations, social attitudes etc.

Following are some social factors that relate most closely to business; entrepreneurship:

  1. Culture:

    Culture is of great importance to entrepreneurship because it determines the ethos of people. It trains people along particular lines. It creates distinctions. It conveys a sense of identity. It enhances social system stability. It creates people enterprising men and risk bearers. It determines goods and services.

  2. Attitude to Business:

    Attitude of people towards wealth-creation and money earning is largely determined by social environment. Entrepreneur have a basic view of materialism.

  3. Work Ethic:

    It is dedication or preoccupation with work. It is a sense of duty and work which is needed for entrepreneurial progress. The Japanese have achieved tremendous progress because of their commitment to work.

  4. Collectivism:

    Entrepreneur makes a bridge between individualism and collectivism. Behind an enterprise, there is no self-motive, rather it is society’s welfare. Entrepreneur must protect the welfare of community. Modern entrepreneurship is a social function.

  5. Ambitions:

    An individual’s ambition to grow or remain satisfied depends on his social environment.

  6. Education:

    The close interface of entrepreneurship and practical and technical education is a new development. Industrial societies of today are knowledge oriented and educated.

  7. Values:

    Values are educating beliefs that people hold about morals, equality, freedom, work ethic, and so on. Over time, values change. When values change, the impact is felt in the ways in which entrepreneurs, government and society operate.

Thus, an entrepreneur can not build up its image in society without considering the social objects, values interests and welfare. This type of social awareness increases the image of business enterprise. If economic growth and entrepreneurial development are to take place, the various forces of social environment must be taken into consideration.

Political Environment

Political factors play a major role in shaping the operations and working of entrepreneurs. Entrepreneurs should try to anticipate changes that may take place in political arena. Political environment is formed by the following factors:

  • Political ideology of the State.
  • Political administrative system.
  • Public welfare concept of a nation.
  • Concept of industrial democracy and workers’ participation
  • Functioning of political parties and pressure groups.
  • Administrative work culture.
  • Political stability in the country.
  • Constitutional provisions regarding business and industrial culture.
  • Foreign policy of the Government.
  • Functioning of political institution-Legislature, Executive and Judiciary.
  • Nature and extent of State regulations.
  • Theory of State interventions and regulation.

Legal Environment

An entrepreneur bears legal liabilities also. George Steiner writes, “Not only have legal actions against business in all areas increased rapidly, but potential liabilities for business has also risen explosively.” Today, major areas of legal concern to entrepreneurs are as follows:

  • Securities and stockholder matters.
  • Consumer complaints and protection.
  • Fair employment practices.
  • Product safety, worker safety and health.
  • Government contracts.
  • Air, water and noise pollution.
  • Legislation controlling physical environment.
  • Anti-monopolistic laws and regulation of trade practices.
  • Legislation regulating competition and protecting consumers.
  • Practices of price discrimination, false and misleading advertisement deceptive sales promotion devices.
  • Other unfair trade practices.

Cultural Environment

The cultural environment is formed by the arts, religion, literature and lifestyle of the people. It exhibits the views and mental development of people. It influences public attitude and consensus towards the business. Such cultural values as Women’s liberation’. Some of the soil’, innovate or die’, ‘Create for society not for self”, “Youth-oriented society’ etc. have influenced entrepreneurial activities and policies considerably. No entrepreneur can overlook the country’s culture heritage and values if he wants to survive and progress. He needs to function on the basis of social expectations, desires and goals. Entrepreneur has to respect the human society, its cultural values and traditions.

Awareness of the cultural environment of business may be useful to entrepreneurs in several ways:

  • To better understand the behaviour and conduct of people.
  • To predict behaviour and determine how people will act in a certain situation.
  • It develops the sensitivity of entrepreneur.
  • It facilitates change.

International Environment

In today’s world no country is isolated; most are subject to the influence of the outside world. The modern communication technology, entry of multinationals and changes happening in diversified fields have bridged the trade gaps between countries. International events put their influences very fast. The entrepreneurial activities of most business firms are affected by international factors like:

  • Rates of inflation in different countries with which it trades.
  • Trade barriers created by different countries.
  • Tariffs imposed on goods.
  • Trade promotional activities.
  • Innovative products and strategies.

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